Lefties like to think the Laffer Curve never applies; righties are too fond of thinking it must apply to any tax in almost any circumstances. Both views are mistaken. Cutting tax does not always increase revenue, but sometimes it can.
As this excellent piece by Donna Edmunds observes, at least 80% of the £6.63 it costs to purchase a packet of smokes goes to the Treasury. At that level of taxation there is no shame in seeking ways to circumvent the Treasury. No wonder at least 10% and perhaps as many as 20% of all cigarettes bought in Britain (and perhaps 50% of rolling tobacco) is contraband, smuggled from abroad.
It is quite an achievement to create another lucrative black market to be exploited by organised crime but that’s what successive governments have managed. Unsurprisingly, the quality of contraband tobacco is not always up to, er, snuff. It is also estimated, as Angela Harbutt points out, to cost the Treasury as much as £4bn a year. And that’s before you include the tobacco for personal use legally purchased more cheaply overseas. (This latter being something more easily achieved by the prosperous, leaving the poor to choose between their wallets and contraband tobacco of often-dubious provenance.)
A sensible government of any stripe would reduce tobacco duty, not increase it. So would a sensible liberal government. So, for that matter, might a progressive government (if that dreary term must receive yet another outing). This government, however, is often not as liberal as it makes out (cf Control Orders) and just as keen on nudging and nannying as its predecessor.
One thing certainly hasn’t changed: the Department of Health is still setting meaningless targets for overall tobacco consumption by the end of this parliament. Or rather it’s setting the wrong targets since it still wants to see a reduction in the number of people smoking, not an increase. They had better hope they fail to meet their targets. Smokers, as has frequently been attested, are the health service’s friend, not its foe. They are, over a lifetime, less expensive to treat than healthy, long-lived non-smokers.
Since increased life-expectancy is, fiscally at least, a major problem that will only get worse it’s past time the government recognised that the one in five adults who smoke are helping both the Treasury and easing pressures on the NHS (a further saving). Were smoking eliminated the consequences would be severe.
And yet that is the prohibitionist logic implicit in the government’s actual policies. Banning the display of cigarettes in shops and making smokes an “under the counter” purchase is both desperately nannyish and something that’s not really calculated to actually achieve anything. (Comparable policies have had no impact in Ireland). Like the notion of requiring cigarettes to be sold in “plain packaging” it’s absurd. If smoking is really so undesirable then it would make sense to prohibit the habit entirely. But for obvious fiscal reasons the government does not want to see this happen.
In this instance, then, we have proof of Mencken’s splendid and oft-accurate adage that “A Conservative government is an organised hypocrisy”. That’s often a good or at least a necessary thing but when it comes to tobacco it seems that Tories and notional Liberals in this government have all forgotten their ethics and, indeed, their calculators.
Reducing, not increasing tobacco taxes, might well boost the Treasury’s income while alleviating a burden that falls disproportionately upon the poor. As a bonus it might also produce a small decrease in racketeering. None of this will happen, of course, so long as the government insists upon its lecturing rights and its mistaken belief that smoking is a Bad Thing rather than a morally-neutral free choice freely made by free people. If anything, from the government’s perspective at least, the evidence supports the contention that smoking is actually a Good Thing.
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